Tuesday, November 08, 2011

Pension changes still up in the air

By Jamey Dunn

A bill to overhaul pensions benefits for state workers was approved by a House committee tonight, but the measure’s future remains uncertain.

An amended version of Senate Bill 512 would reduce retirement benefits for workers hired before a new benefits system took effect in January. If the measure becomes law and survives court challenges vowed by unions, employees hired under the old system would be allowed to keep all the benefits they earned until the law goes into effect. After the law kicked in, they would have to pay more to keep their current or so-called tier one benefits, switch to the so-called second tier that contains any workers hired after January and offers reduced benefits and a later retirement age, or move their money to a savings plan similar to a 401(k).

Under a previous incarnation of the plan that failed to gain the support needed to pass last spring, the amount employees would have to pay to remain in tier one would have been recalculated every three years in order to reflect the real cost of tier one benefits. The proposal that House Minority Leader Tom Cross presented today would allow for a single recalculation after three years with any increase capped at a 2 percentage points. Cross said the change reflects a willingness to compromise and is meant address complaints that members of tier one would have difficulty planning around required contributions that could change every three years. However, he said without the additional recalculations, members of tier one will likely end up paying less than the actual cost of their retirements.

“The downside is that it doesn’t completely cover the cost of the benefits. I think you’ll hear from people who will say … it should be higher, and that was the rational for the original version. But in the legislative process, we try to hear what people are saying,” said Cross.

Supporters of Cross' plan said the state’s billions in unfunded obligations to the pension system would continue to eat up the budget, leaving little money for core state services such as education and public safety.

“Without reform, we must either watch as pension contributions crowd out all other state services … or accept responsibility for allowing the pension funds to fail,” said Tyrone Fahner, president of the Civic Committee of the Commercial Club of Chicago, one of the driving forces behind the pension reform push.

However, union officials argued that changes to benefits for employees hired under the old plan are unconstitutional.

“Whether it was corporate tax breaks or new programs — for decades these tax breaks and these programs have been paid for in part by putting off or ignoring pension payments due to these good workers," said Michael Carrigan, Illinois AFL-CIO president. “Pensions have become an issue because they weren’t a priority when spending decisions were made over the past decades. Had pensions been adequately funded down throughout the years, the recent economic downturns … could have been weathered.”

Opponents of SB 512 said that reductions in benefits would not automatically create reform in the system and questioned the lack of a guarantee in the bill that the state would make its required contributions. Rep. Karen May said she would like a so-called lock-box provision in the bill that would end the increased contribution levels for workers if the state fails to make its contribution.

May, a Highland Park Democrat, and Rep. Daniel Biss, an Evanston Democrat, said that they thought the proposal needed improvement. Biss said that since the effective date for SB 512 is not until July 2012, with most of the provisions kicking in even later than that date, lawmakers can work until the spring legislative session on a better bill. However, he said as of now, “there is not a clear counter proposal on the table.”

Biss added that he hopes working groups with representatives from all sides of the issue can come up with a more holistic plan. “I’m going to be for a major pension reform bill this spring. Period. If there’s nothing better on the table than Senate Bill 512, I’ll be for 512. I hope that’s not where we are.”

After the hearing, Cross declined to comment on his next move. He claimed in the first week of veto session that he has 30 Republican “yes” votes for the plan and said it was up to bill co-sponsor House Speaker Michael Madigan to supply 30 Democratic supporters and call the bill for a floor vote. When asked yesterday when he planned to call the measure, Madigan replied that the bill belongs to Cross. Senate President John Cullerton has said that he believes that the bill is unconstitutional, but he said he would allow it to come for a vote in his chamber if it passes in the House.

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